Lululemon outlook lift thrills Wall St as yogawear stays in vogue

7:21 pm Thursday, June 01st, 2023

By Deborah Mary Sophia

(Reuters) – Lululemon Athletica Inc raised its annual sales and profit forecasts on Thursday as wealthy Americans snap up its pricey activewear even though inflation hounds wider retail spending, sending the company’s shares up 13% after hours.

A strong rebound in China, easing air freight costs and tighter inventory control also helped first-quarter results surpass estimates at the Vancouver, Canada-based company.

The pandemic-era appetite for comfortable clothing and activewear has turned into a habit for most Americans. That, along with a higher-income customer base, has been a boon for companies such as Lululemon and Nordstrom Inc.

“We’ve seen no change in our (customer) behavior in terms of frequency of purchase or engagement,” Lululemon CEO Calvin McDonald said on a post-earnings call. Transactions increased from both existing and new customers, while traffic was also robust.

Lululemon’s crowd-favorite Dance Studio pants and new silhouettes such as flared and wide-leg leggings were also in vogue, along with accessories such as backpacks and duffle bags, McDonald added.

“I think they surprised everybody … There’s not many companies in retail that have had this solid track record of very strong growth in comps every quarter,” said M Science analyst Matthew Jacob.

Lululemon’s inventories at quarter-end were up 24%, a smaller increase than the company had estimated in March. It expects growth of about 20% at the end of the current quarter.

The easing of China’s strict COVID-19 curbs bolstered revenues from the region by 79%, while North America sales jumped 17%.

That drove net revenue up 24% to $2 billion in the quarter, beating estimates of $1.93 billion, according to Refinitiv IBES.

Lululemon now expects full-year 2023 revenue between $9.44 billion and $9.51 billion, compared with $9.30 billion to $9.41 billion projected earlier.

It forecast annual profit between $11.74 and $11.94 per share, up from $11.50 to $11.72 earlier.

(Reporting by Deborah Sophia in Bengaluru; Editing by Devika Syamnath)